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HOW PARENTS CAN REDUCE HELP REDUCE STUDENT DEBT

Student debt - differing attitudes to money

Liz and Andy have two grown up children who have both completed their university course. They gave both of them the same financial backing, but their son ended up with debts of £25,000, while their daughter finished with no debts whatsoever. So how come? The big difference was that Liz and Andy gave their son a monthly allowance, while they gave their daughter her money week by week. The trouble with Liz and Andy's son was that he could not resist the temptation of the large amount of money paid into his account each month and spent it all in a few days. Then he had nothing left for the rest of the month.

Financial plight of students - the role of parents

For the more fortunate children who run into financial difficulties, many are saved from disaster by their mother or father. However, coaching your children before they go to university on some basic financial principles can help avoid disaster.

Encouraging your children to save

The first obvious principle is to encourage your children to save. A youngster putting aside say £20 a week from a part time job will have £1,000 at the end of the year.

Encouraging youngsters to budget

Encouraging budgeting from an early age is also a good idea. It is a good plan to get your children to write down their income and outgoings. When they see it written down in black and white, it can be a very sobering experience.

Thinking about cash flow

Many students manage their cash much better on a weekly basis than a monthly one. It's a good idea to sit down with your child and work out what their weekly budget should be. Make sure they have a copy of this. Give them enough money each week to cover the budget. That way, they cannot blow a month's money in a few days.

Avoid credit cards at all cost

A credit card or a store card is 'a definite no no'! A £200 credit limit on a credit card can seem harmless, but often credit card companies do not stick to this and when the limit is breached, they simply put up the credit limit. This can result in debts of thousands of pounds. For those who find the temptation irresistible, the penalty can be a spiral of debt that can easily get out of hand.

Set up content insurance

Students take a range of equipment to university - laptops, music systems, ipods, cameras to name just a few items. Typically, this can represent over £4,000 worth of equipment. Unfortunately, the criminals know this and take advantage of vulnerable students at the start of the university year help themselves to as many high value items as they can carry.

Check car insurance policies

It is very important that students with cars tell their motor insurance company when they change address - eg from home to hall, or from hall to flat. For example, a motor insurer could turn down a claim if a student is no longer living in a university hall (where the parking is safe), but living in a student flat in town (where the parking is dodgy).

Tenancy agreements

Tenancy agreements are complex documents and many youngsters (and adults) struggle to understand the implications. If your child is taking on a student flat, you may find that you are required to be a guarantor on the letting contract. If this happens to you, make sure you see a copy of the agreement (and, if possible, the flat or house). Guarantors are liable for the agreed rent, and if your child or the other tenants do not pay, you may find that you are chased for the money.

Here are some pointers to look out for:

Make sure that the names of all the tenants are on the contract - it it is just one person (which could be your child), you would be liable for the entire rental cost of the property.

Summer holidays - many rental agreements include the summer holidays when the students are unlikely to be using the accommodation. You could try to negotiate a reduction in rent for this period.

Make sure the landlord has fulfilled all legal obligations. It's very important that you check the gas safety certificate. Also make sure the landlord is complying with the tenancy deposit scheme.

Check that the equipment provided in good working order order (that's why a visit is always useful - youngsters do not notice these things). Find out what happens if the any of the equipment provided (such as the fridge or washing machine) breaks down.

Make sure that your child and his or her future flat mates have worked out a way of paying the bills between them. Make sure that there is not just one name on the utility bill. The name on the bill is the person who is liable to pay.

Encourage your child to ask for help

Make sure your child understands that he or she must come to you or to university welfare advisers if they ever feel their financial situation is getting out of control. Facing up to the problem is usually the turning point. The longer things go on, the bigger the debt that builds up.

 

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